SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended February 28, 2003
Commission File Number 0-7795
KNUSAGA CORPORATION
(Exact name of Registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
38-3601122
(I.R.S.) Employer Identification Number
3578 S. VAN DYKE
ALMONT, MI 48803
(Address of principal executive office and zip code)
Registrant's telephone number (include area code): (810) 798-8567
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (D) of the Securities Exchange Act of 1934
during the preceding twelve months (or such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
X YES NO
---- ----
Shares of Common Stock Par Value $.001, outstanding: 7,175,000.
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RESULTS OF OPERATIONS
The Company's operations are classified into two principal reportable segments,
tubing and seat tracks, that provide different products or services. Separate
management of each segment is required because each business unit is subject to
different marketing, production and technology strategies.
Combined net sales declined 48.1% in the second quarter ending February 28, 2003
of the fiscal year ending August 2003 to $1,161,447 from $2,236,530 a year ago.
Sales for the tubing segment in the second quarter decreased by 26.9% to
$811,332 from $1,109,651 a year ago. The heavy truck market, served by our
tubing segment, is entering the third year of a sharp decline from traditional
levels, however the decline in this quarter, compared to a year ago, is the
result of business lost to a competitor because of pricing pressures only
partially offset by business from new customers.
In the second quarter sales in the seat track segment, which serves the Class A
motorhome market, declined 68.9% to $350,115 from $1,126,879 a year ago. This is
a result of the registrant's major customer switching to a newer, lower cost
product from a competitor. The registrant has delivered prototypes of a new seat
track design to two major potential customers. This new design could enter
production in time for the 2004 model motorhome production which begins in the
Fall of this year.
For the six months ending February 28, 2003, combined sales declined 39.6% to
$2,759,631 from $4,566,602 in the year ago period for the same reasons as stated
above.
The registrant operated at a loss of $81,346 in the second quarter of the 2003
fiscal year ending February 28, 2002 versus a profit of $49,246 in the year ago
period as a result of the decreased sales revenue. For the six months ending
February 28, 2003, the loss was $57,832 versus a profit of $98,788 in the year
ago period.
Below is summarized segmental data for the second quarters and six months ending
February 28, 2003 and February 28, 2002.
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2ND QTR TUBING SEAT TRACK TOTAL
- -----------------------------------------------------------------------------------------------------------
2003 2002 2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------
REVENUE 811,322 1,109,651 350,115 1,126,879 1,161,447 2,236,530
- -----------------------------------------------------------------------------------------------------------
PROFIT (102,100) (138,601) 20,754 187,847 (81,346) 49,246
- -----------------------------------------------------------------------------------------------------------
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- -----------------------------------------------------------------------------------------------------------
6 MONTHS TUBING SEAT TRACK TOTAL
- -----------------------------------------------------------------------------------------------------------
2003 2002 2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------
REVENUE 1,942,314 2,615,503 817,317 1,951,099 2,759,631 4,566,602
- -----------------------------------------------------------------------------------------------------------
PROFIT (115,669) (198,170) 57,837 296,958 (57,832) 98,788
- -----------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses decreased 34.9% in the second
quarter ending February 28, 2003, to $189,028 from $290,323 in the year ago
period as a result of major expense reductions in response to the decreased
sales. For the six months ending February 28, 2003, these expenses decreased
32.2% to $394,901 from $582,368 in the year ago period.
LIQUIDITY AND SOURCES OF CAPITAL
The Registrant has a $1,250,000 line of credit with Standard Federal Bank, with
interest payable monthly at the Bank's Prime Rate plus 1%. This line of credit
is evidenced by a note which is secured by a security interest/mortgage on all
of the Registrant's assets. This line of credit is due January 1, 2004. As of
February 28, 2003, the outstanding balance was $244,761 and the applicable
interest rate was 4.75%.
CONTINGENT MATTERS
There are no contingencies or consequential uncertainties known that will
materially affect the financial information as presented.
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KNUSAGA CORPORATION
BALANCE SHEET (UNAUDITED)
FEBRUARY 28, 2003 AND FEBRUARY 28, 2002
ASSETS February 28, 2003 February 28, 2002
CASH $ 188,113 $ 125,893
ACCOUNTS RECEIVABLE $ 552,726 $ 1,642,032
ACCOUNTS RECEIVABLE - OTHER $ 177,056 $ 6,133
INVENTORIES $ 683,753 $ 1,097,514
REFUNDABLE TAXES $ 0
PREPAID EXPENSES $ 83,195 $ 81,811
----------- -----------
TOTAL CURRENT ASSETS $ 1,684,843 $ 2,953,376
NET PROPERTY AND EQUIPMENT $ 1,737,539 $ 1,911,129
OTHER ASSETS
DEPOSITS $ 7,050 $ 7,050
INVESTMENT IN JOINT VENTURES $ 126,066 $ 110,987
GOODWILL, NET OF AMORTIZATION $ 4,646 $ 5,650
----------- -----------
TOTAL OTHER ASSETS $ 137,764 $ 123,687
----------- -----------
TOTAL ASSETS $ 3,560,146 $ 4,988,192
=========== ===========
LIABILITIES
ACCOUNTS PAYABLE $ 231,481 $ 552,477
NOTES PAYABLE $ 849,200 $ 1,405,500
ACCRUED LIABILITIES $ 794,361 $ 1,207,212
----------- -----------
TOTAL CURRENT LIABILITIES $ 1,875,042 $ 3,165,189
LONG TERM DEBT $ 394,273 $ 633,898
DEFERRED TAXES $ 57,300 $ 36,500
----------- -----------
TOTAL LIABILITIES $ 2,326,615 $ 3,835,587
STOCKHOLDERS EQUITY
STOCK $ 7,175 $ 70,000
PREFERRED STOCK $ 175,000
ADDITIONAL PAID IN CAPITAL $ 604,190 $ 366,365
RETAINED EARNINGS $ 622,166 $ 648,583
NOTE RECEIVABLE SHAREHOLDER ($ 107,343)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY $ 1,233,531 $ 1,152,605
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 3,560,146 $ 4,988,192
=========== ===========
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KNUSAGA CORPORATION
STATEMENT OF INCOME (UNAUDITED)
FOR THREE AND SIX MONTH PERIOD ENDED
FEBRUARY 28, 2003 AND FEBRUARY 28, 2002
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
2003 2002 2003 2002
NET SALES $ 1,161,447 $ 2,236,530 $ 2,759,631 $ 4,566,602
COST OF GOODS SOLD $ 1,083,609 $ 1,809,613 $ 2,472,200 $ 3,724,727
----------- ----------- ----------- -----------
GROSS PROFIT $ 77,838 $ 426,917 $ 287,431 $ 841,875
SELLING, GENERAL AND ADMINISTRATIVE $ 189,028 $ 290,323 $ 394,901 $ 582,368
EXPENSES
MISC. INCOME (EXPENSE) ($ 12,248) ($ 23,692) $ 19,644 ($ 60,246)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE TAXES ($ 123,431) $ 112,902 ($ 87,826) $ 199,261
PROVISION FOR FEDERAL INCOME TAXES ($ 42,085) $ 63,656 ($ 29,994) $ 100,473
----------- ----------- ----------- -----------
NET INCOME BEFORE EXTRAORDINARY ITEMS ($ 81,346) $ 49,246 ($ 57,832) $ 98,788
EXTRAORDINARY ITEMS: $ 0 $-0- $ 0 $ 0
----------- ----------- ----------- -----------
NET INCOME ($ 81,346) $ 49,246 ($ 57,832) $ 98,788
PAR SHARE OF COMMON STOCK AND COMMON
STOCK EQUIVALENTS:
AVERAGE OUTSTANDING SHARES 7,175,000 7,000,000 7,175,000 7,000,000
(0.011) 0.007 (0.008) 0.013
THE FINANCIAL STATEMENTS INCLUDED IN THIS REPORT REFLECT ALL ADJUSTMENTS, WHICH,
IN THE OPINION OF REGISTRANT'S MANAGEMENT, ARE NECESSARY FOR FAIR PRESENTATION.
THE FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE FOOTNOTES WHICH
ARE A PART OF REGISTRANT'S AUDITED FINANCIAL STATEMENTS CONTAINED IN
REGISTRANT'S MOST RECENTLY FILED ANNUAL REPORT ON FORM 10KSB.
-5-
KNUSAGA CORPORATION
STATEMENT OF CASH FLOW (UNAUDITED)
THREE AND SIX MONTHS PERIOD ENDED
FEBRUARY 28, 2003 AND FEBRUARY 28, 2002
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY FEBRUARY FEBRUARY FEBRUARY
28, 2003 28, 2002 28, 2003 28, 2002
NET INCOME ($ 81,346) $ 49,246 ($ 57,832) $ 98,788
DEPRECIATION & AMORTIZATION $ 72,229 $ 87,487 145,411 $ 145,566
(INCREASE) DECREASE IN:
ACCOUNTS RECEIVABLE ($ 40,119) ($ 230,716) $ 582,992 ($ 106,219)
INVENTORIES ($ 8,466) ($ 60,037) $ 16,569 ($ 86,981)
REFUNDABLE TAXES $ 205,566
PREPAID EXPENSES ($ 44,418) ($ 26,696) ($ 25,796) ($ 37,211)
OTHER ASSETS $ 501 $ 3,529
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE ($ 27,024) ($ 2,404) ($ 182,318) ($ 163,235)
ACCRUED LIABILITIES ($ 14,676) $ 451,436 ($ 123,022) $ 344,040
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES ($ 143,820) $ 268,817 $ 356,004 $ 403,843
INVESTMENT ACTIVITIES
PURCHASES OF EQUIPMENT ($ 18,030) ($ 8,768) ($ 64,032) ($ 1,708)
PROCEEDS FROM SALE OF EQUIPMENT $ 59,895
INVESTMENT IN JOINT VENTURES ($ 5,459) ($ 120) $ 11,696
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES ($ 18,030) ($ 14,227) ($ 4,257) ($ 13,404)
FINANCING ACTIVITIES
PAYMENT OF NOTES ($ 50,203) ($ 181,148) ($ 299,162) ($ 327,299)
CASH USED FOR FINANCING ACTIVITIES ($ 50,203) ($ 181,148) ($ 299,162) ($ 327,299)
NET INCREASE (DECREASE) ($ 212,053) $ 73,442 $ 52,585 $ 63,140
BEGINNING CASH $ 400,166 $ 52,451 $ 135,528 $ 62,753
ENDING CASH $ 188,113 $ 125,893 $ 188,113 $ 125,893
-6-
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
KNUSAGA CORPORATION
By: James Musser
---------------------------------------
President, Duly Authorized Officer and
Principal Accounting Officer
Dated: April 8, 2003
---------------------------------------
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FORWARD LOOKING STATEMENTS
Certain sections of this quarterly report contain statements reflecting
the Registrant's views about its future performance and constitute
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995. Such statements can be identified by the use of terminology such as
"will," anticipate," "estimate," "expect," intends," or similar words. These
views involve risks and uncertainties that are difficult to predict and,
accordingly, the Registrant's actual results may differ materially from the
results discussed in such forward-looking statements. Readers should consider
that various factors in the United States and abroad, including changes in
general economic conditions, competitive market conditions and pricing
pressures, relationships with key customers, industry consolidation of vehicle
and truck suppliers, shifts in distribution, currency exchange rates and other
factors discussed in the Registrant's other filings with the Securities and
Exchange Commission, may affect the Registrant's performance. The Registrant
undertakes no obligation to update publicly any forward-looking statements as a
result of new information, future events or otherwise.
Supplemental Item. Controls and Procedures
Based on their most recent evaluation, which was completed within 90 days of the
filing of this Form 10-QSB, the registrant's Chief Executive Officer and Chief
Financial Officer believe the registrant's disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) are effective to ensure
that information required to be disclosed by the registrant in this report is
accumulated and communicated to the registrant's management, including its
principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required disclosure. There were no significant
changes in these controls subsequent to the date of their evaluation and there
were no corrective actions with regard to significant deficiencies and material
weaknesses.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KNUSAGA CORPORATION KNUSAGA CORPORATION
By: James G. Musser By: Jerry Luptak
---------------------------------- --------------------------------
Director/President Vice President and Principal
(Principal Executive Officer Financial Officer
and Controller)
Dated: April 8, 2003 Dated: April 8, 2003
------------------------------- -----------------------------
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KNUSAGA CORPORATION
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
---------------
I, James G. Musser, certify that:
1) I have received this quarterly report on Form 10-QSB of
KnuSaga Corporation;
2) Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3) Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant is made known to us, particularly during
the period in which this quarterly report is being
prepared;
b. Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5) The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a. All significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6) The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: April 8, 2003
/s/ James G. Musser
- -------------------------
James G. Musser
Chief Executive Officer
KNUSAGA CORPORATION
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
-----------------
I, Jerry Luptak, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
KnuSaga Corporation;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant is made known to us, particularly during
the period in which this quarterly report is being
prepared;
b. Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a. All significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying office and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: April 8, 2003
/s/ Jerry Luptak
- ---------------------
Jerry Luptak
Chief Financial Officer
10-K EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002